WTI slips back from $51.00 level but remains underpinned by buoyant risk appetite

• WTI is off Asia Pac highs above the $51.00 level, but remains underpinned by buoyant risk appetite.
• Markets continue to price in more fiscal stimulus in the months ahead, which should be positive for crude oil demand.

The American benchmark for sweet light crude oil managed to poke above the $51.00 level for the first time since 25 February during Thursday’s Asia Pacific session, but has since pulled back below the big figure. However, bulls came in to buy the dip as the front-month WTI futures contract fell back below $50.50 and pushed it back to just under $51.00. On the day, the crude oil complex clings on to modest gains, with WTI up just under 20 cents or just over 0.3% as it trades around $50.90.

Buoyant risk appetite keeps crude oil afloat

Markets are in an upbeat mood on Thursday; the S&P 500 crossed above the 3800 level for the first time and is up roughly 1.5% on the day and US bonds yields continue to rise as markets continue to price in stronger US economic growth ahead given expectations for higher government spending under the Biden administration and Democrat-controlled Congress.

The prospect of stronger demand for crude oil as a result of expectations for stronger growth later in the year is underpinning crude oil markets on Thursday and has insulated the complex from jet fuel demand concerns after RyanAir announced in the European morning that it had reduced its full-year traffic forecast to 26-30M passengers from previous expectations for 35M.

Elsewhere, US economic data has been upbeat; the December ISM services PMI unexpectedly rose to 57.2 from 55.9 in November versus expectations for a drop to 54.6, despite the higher prevalence of Covid-19 and tougher lockdown restrictions on businesses. The sub-indices were mostly strong, with New Orders rising to 58.5 from 57.2, Business Activity rising to 59.4 from 58.0. Prices eased back slightly to 64.8 from 66.1 and, boding poorly for Friday’s jobs numbers, employment fell back below 50.0 to 48.2.

Meanwhile, weekly US jobs numbers were better than expected, with Initial Jobless Claims in the week ending on 2 January 2021 remaining largely unchanged at 787K versus expectations for a rise to 833K from 790K (revised up from 787K) the week prior. Continued claims for the week ending on 26 December dropped to 5.072M from 5.198M, below expectations for an unchanged reading.

The better performance of the US economy over the last few weeks according to recent data suggests that crude oil demand has held up better than expected, a thesis also implied by stronger than expected US demand for fuel as suggested by Wednesday’s much larger than expected draw in crude oil inventories last week. That bodes well for fuel demand in the months ahead as Covid-19 continues to spread as it has done over the past few weeks.

Note also that voluntary output cuts from the Saudi Arabians is also helping underpin crude oil. Now that the complex has burst back into the $50.50ish-$65.00ish range it spent much of 2019 within, more upside might well be instore.